This is an entirely free service. No payments are to be made. Also send me The Ultimate Guide to Profiting From Derivatives and sign me up for Profit Hunter,a free newsletter that focuses on identifying short term money making opportunities.Download NowSubscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.

Bank of Baroda: Fees take centrestage - Views on News from Equitymaster

What has driven performance in 1QFY09?

Overseas growth going strong: Bank of Baroda (BoB) clocked a sterling 42.1% YoY growth in advances in 1QFY09, at a time when the average sector growth is nearly half that figure. The growth in low cost overseas deposits was, however, higher than the domestic deposits as the bank increased the proportion of overseas term deposits in its books. BoB plans to continue the thrust on overseas business and take its share to 25% in the next three years from the current 21%. Further, the bank hopes to sustain the level of NIM at 3.0% in FY09 (2.8% in 1QFY09) by passing on the rate hike on incremental advances.
Overseas business takes lead

1QFY08

% of total

1QFY09

% of total

Change

Advances

782,646

1,112,140

42.1%

Domestic

628,306

853,190

35.8%

% of total

80%

77%

Agriculture

104,802

13.4%

137,290

16.1%

31.0%

Retail

142,323

18.2%

169,080

15.2%

18.8%

SME

101,146

12.9%

120,870

10.9%

19.5%

Overseas

154,340

258,950

67.8%

Deposits

1,224,569

1,549,080

26.5%

Domestic

940,336

1,177,301

25.2%

% of total

77%

76%

CASA

362,970

38.6%

434,424

36.9%

19.7%

Term deposits

577,366

61.4%

742,877

63.1%

28.7%

Overseas

271,174

371,779

37.1%

Fees in focus: After having stagnancy in its fee revenues over several quarters, BOB seems to have finally drawn focus on this counter to shield its profits from getting eroded by the lower NIMs and treasury losses. Fee income backed by growth in commissions and forex income grew by 44.5% to form 10% of total income at the end of 1QFY09. The bank currently has 68.3% of investments in the HTM basket.

The bank’s cost to income ratio dropped from 52% in 1QFY08 to 45% in 1QFY09 due to the implementation of core banking solution at 94% of branches and natural attrition.

Retail sees red: While Bank of Baroda has witnessed a 5.3% YoY reduction in the absolute value of its gross NPAs over the last 12 months; the net NPAs too have declined from 0.7% of total advances in 1QFY08 to 0.5% in 1QFY09. More importantly, the growth in cash recoveries substantially reduced the provisioning requirement for the bank in 1QFY09. The NPA coverage ratio stood at a comfortable 72.5% at the end of 1QFY09. Gross NPAs in the retail portfolio, however, moved up substantially.

Where the risk lies…

Gross NPAs (%)

1QFY08

1QFY09

Agriculture

3.8

3.2

Large industries

3.2

1.2

Retail advances

2.4

3.5

SME

N.A

3.3

Overseas advances

0.6

0.6

Domestic advances

2.2

1.9

In the international operations, gross NPAs are at 0.6% while the net NPAs are zero. While higher recoveries and an adequate coverage ratio dilute some concerns on this front, the NPA level in retail loans (3.2% in 1QFY09) remains a peril.

What to expect?

At the current price of Rs 227, the stock is valued at 0.6 times our estimated FY11 adjusted book value. The bank has marginally outperformed our broad asset growth and margin estimations and we will need to upgrade our forward estimations if the same continues in the forthcoming quarters of this fiscal. Adequate capital, a high provisioning cover and exposure in overseas markets that hedged its net interest margins makes it a de-risked play in the PSU banking space.

OTHER USEFUL LINKS

MARKET STATS

ABOUT EQUITYMASTER

Since 1996, Equitymaster has been the source for honest and credible opinions on investing in India. With solid research and in-depth analysis Equitymaster is dedicated towards making its readers- smarter, more confident and richer every day. Here's why hundreds of thousands of readers spread across more than 70 countries Trust Equitymaster.

All rights reserved. Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.